Many business experts agree that a recession can be a good time to start a new business. However, this doesn’t mean that a new business created during a recession will automatically succeed. In fact, according to the U.S. Small Business Administration, roughly 50 percent of all small businesses fail within the first five years.
Still, if you have marketable skills and have recently been laid off or are being threatened with a potential layoff, you might decide that a 50 percent chance of success is a gamble worth taking. Here are 14 steps that can get you started on the path to becoming a successful entrepreneur.
- Create a business and marketing plan. Be very sure about what you will sell or service. It’s best to begin with a core competency and consider offshoots and tangents later.
- Decide on your operating name and your Web site address. Check with your state corporation commission to make sure your business name isn’t already being used by another company. A quick search at Network Solutions can tell you whether your domain name is available.
- Make sure your new business won’t violate any non-compete agreements with your existing or former employer. (You might wish to consult with an attorney on this matter.)
- Determine the type of business you want to operate-a sole proprietorship, a limited liability company, a partnership, a corporation or an S-corporation. Each business type has specific legal and tax considerations.
- Make sure you have the appropriate professional licenses to operate your business.
- Consult an attorney to set up your business and develop the articles of incorporation and bylaws. Another option is legalzoom.com, which can help you set up a business in any state for a small fee.
- Draw up agreements for shareholders, if applicable. These can be obtained as part of an “incorporation kit,” but it’s a good idea to have the final documents reviewed by an attorney.
- Consider how you will finance your company. If you are planning to use personal assets to finance the startup, you should draw up a loan to the company with interest so you get paid back. Other possible sources of funding include government grants and venture capital.
- Select a bank and set up your business accounts. You may want to create one account for payroll that is only funded near payday with a separate master account for your receivables. Discuss the various options with your bank.
- Investigate obtaining a line of credit through a bank, business credit cards, etc.
- Obtain a business license for the jurisdiction in which you will operate. This license is usually reasonably priced and is based on your expected revenues.
- Purchase the appropriate insurance policies, including errors and omissions (E&O) insurance, contractor’s liability insurance, etc. Don’t forget basic liability, fire, theft and corporate automobile insurance.
- Line up a Web site developer. Check compatibility with your Internet service provider, and consider whether you will need an online store.
- Assemble a list of immediate contacts-friends, business acquaintances, etc.-and begin networking.